In Re: Snyder

Filing 30

ORDER AFFIRMING JUDGMENT of the Bankruptcy Court. The Clerk shall enter judgment in favor of the plaintiffs-appellees and close the case. Signed by Judge Stefan R. Underhill on 04/23/2018. (Jamieson, K)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT

IN RE STUART SCOTT SNYDER, and
DOREEN ANNE SNYDER,
Debtors.

STUART SCOTT SNYDER, and
DOREEN ANNE SNYDER,
Defendants-Appellants,

No. 3:17-cv-00840 (SRU)

v.
JOSEPH J. MURPHY, and
NANCY A. MURPHY,
Plaintiffs-Appellees.
RULING AND ORDER
Stuart Scott Snyder and Doreen Anne Snyder appeal from an order of the United States
Bankruptcy Court for the District of Connecticut (Manning, C.J.) (the “Bankruptcy Court”)
deeming nondischargeable a judgment rendered against the Snyders in favor of Joseph Murphy
and Nancy Murphy by the United States District Court for the Eastern District of New York (the
“District Court”). For the following reasons, I affirm the judgment of the Bankruptcy Court.
I.

Standard of Review
The district courts have jurisdiction to hear appeals from “final judgments, orders and

decrees” of the bankruptcy courts. 28 U.S.C. § 158(a). In the context of an adversary proceeding
within a bankruptcy case, an award of summary judgment is a final appealable order because it
“completely resolve[s] all of the issues pertaining to the discrete claim.” In re Miner, 222 B.R.
199, 202 (2d Cir. BAP 1998); see Hoffman v. Cheek, 90 B.R. 21, 21 (D. Conn. 1988).

“Generally in bankruptcy appeals, the district court reviews the bankruptcy court’s
factual findings for clear error and its conclusions of law de novo.” In re Charter Commc’ns, 691
F.3d 476, 482–83 (2d Cir. 2012). Because a motion for summary judgment does not permit the
court to find any facts, however, see Flaherty v. Lang, 199 F.3d 607, 615 (2d Cir. 1999), “[a]
grant of summary judgment is reviewed de novo by the appellate court.” Andrews v. McCarron
(In re Vincent Andrews Mgmt. Corp.), 507 B.R. 78, 81 (D. Conn. 2014).
II.

Background1
Plaintiffs Joseph Murphy and Nancy Murphy are a married couple who live in Suffolk

County, New York. Bankr. Compl., App’x at 3; Bankr. Answer, App’x at 15. Joseph Murphy’s
sister, defendant Doreen Anne Snyder, is married to defendant Stuart Scott Snyder. The Snyders
live in Greenwich, Connecticut. Bankr. Compl., App’x at 3; Bankr. Answer, App’x at 15. Prior
to the events that are the subject of the District Court lawsuit, the parties “had a very close
relationship . . . , celebrated holidays and vacationed together, and enjoyed a relationship of
personal trust.” Bankr. Answer, App’x at 15–16; see Bankr. Compl., App’x at 4 (same).
Scott Snyder has worked in the construction business for more than twenty years, owning
several entities through which he builds and renovates luxury homes and commercial properties.
Joseph Murphy is a retired New York City firefighter and police officer. In 2005, Joseph
approached Stuart to discuss investment opportunities for real estate projects. Stuart “offered the
Murphys an opportunity to participate as ‘silent partners’ by investing $100,000 in two luxury
home projects in Haworth, New Jersey” (the “Haworth Project”). Murphy v. Snyder, 2014 U.S.
Dist. LEXIS 134097, at *4 (E.D.N.Y. Aug. 15, 2014), report and recommendation adopted,
2014 U.S. Dist. LEXIS 133179 (E.D.N.Y. Sept. 22, 2014). In exchange for the $100,000, Stuart

1

Unless otherwise indicated, the facts are taken from the ruling below.
2

“guarantee[d] the Murphys the return of their initial investment plus twenty percent in
approximately one year.” Id. The Murphys accepted the arrangement and entered into an oral
agreement with the Snyders. On behalf of himself and his wife, on December 28, 2005, Joseph
wire-transferred $100,000 to an attorney trust account in the name of “Defendants’ then counsel,
Steven Freesman.”2 Murphy, 2014 U.S. Dist. LEXIS 134097, at *41. One week later, the
Murphys received the blueprints for the Haworth Project.
The Murphys and the Snyders subsequently entered into a second oral agreement to
purchase a vacant lot located on Bible Street in Greenwich, Connecticut, for the purpose of
constructing a custom-built luxury home for sale (the “Bible Street Project”). Unlike the
Haworth Project, the Murphys were to be the Snyders’ only partners on the Bible Street Project,
and Joseph Murphy intended to actively participate in the construction and sale of the property.
“Stuart again guaranteed the Murphys their initial investment plus a [twenty percent] return and
possibly more.” Id. at *5. On August 28, 2006, Joseph Murphy wire-transferred $275,000—
which he and Nancy Murphy allegedly obtained by mortgaging their family home, id.—to a bank
account in the name of one of the Snyders’ companies.
The Haworth Project was finished by July 2009, when one of the houses was sold for
$1.4 million. Bankr. Compl., App’x at 9; Bankr. Answer, App’x at 22. The other house appears
to have eventually been sold in March 2012 for $1.3 million, see Deed, App’x at 281, after a
period in which it was leased for $9,000 per month. Dist. Ct. Compl., App’x at 90; Appellants’
Br., Doc. No. 16, at 15. With respect to the Bible Street Project, however, the Snyders never

2

The Snyders claim that Freesman was not their attorney, but represented another investor,
Michael Maisel. See Appellants’ Br., Doc. No. 16, at 11. The District Court concluded otherwise,
and because that determination was necessary to support the Court’s holding that the Snyders
breached the Haworth Project contract, it is entitled to preclusive effect as explained below.
3

purchased the property in Connecticut. Instead, they used the Murphys’ $275,000 to build two
other luxury homes in Demarest, New Jersey (the “Demarest Project”).3 Those houses were sold
in 2010 for over $3 million each. Bankr. Compl., App’x at 9; Bankr. Answer, App’x at 22.
Despite at least portions of the Haworth and Demarest Projects turning a profit,4 the
Murphys never recovered their investments and never received the promised 20 percent returns.
In addition, Scott Snyder spent at least $20,000 of the Murphys’ investment on personal items.
See Appellants’ Br., Doc. No. 16, at 14. Records and checks obtained from the Snyders’ bank
indicate that there was less than $1,000 in the Snyders’ account at the time the Murphys wired
their $275,000 investment on August 28, 2006. Over the next two months, nearly all of the
Murphys’ money was depleted—even though the Snyders failed to purchase the Bible Street
property—as the Snyders withdrew money to pay for an expensive meal in Washington, D.C.,
car repairs, yacht club dues, and the Snyders’ daughter’s college textbooks. See Bankr. Local
Rule 56(a)2 Statement, App’x at 338–39. The Snyders also used the account to withdraw more
than $10,000 in cash and pay off more than $50,000 of credit card debt. Id.

3

The Snyders claim that the Murphys were told that the Bible Street Project would not proceed
and consented to the use of the money for the Demarest Project. See Stuart Snyder Aff., App’x at
322. The Murphys allege that they were “constantly misled” by the Snyders and did not learn
about the Demarest Project until “after years of story after story.” See Bankr. Compl., App’x at
8. The District Court adopted the Murphys’ account: in holding the Snyders liable for breach of
contract, the Court concluded that the Snyders “breached th[e] agreement by failing to purchase
the Bible Street property, and instead, used [the Murphys’] monies for other projects and
purposes without notice to or authorization by [the Murphys].” See Murphy v. Snyder, 2014 U.S.
Dist. LEXIS 134097, at *26 (E.D.N.Y. Aug. 15, 2014), report and recommendation adopted,
2014 U.S. Dist. LEXIS 133179 (E.D.N.Y. Sept. 22, 2014). That determination was necessary to
support the District Court Judgment and is entitled to preclusive effect as explained below.
4

The Snyders allege that one of the houses in the Haworth Project was sold at a loss. They
admit, however, that the other sold for a $150,000 profit. See Appellants’ Br., Doc. No. 16, at 15.
4

On April 6, 2010, the Murphys filed a seven-count complaint against the Snyders, their
companies, and other defendants in the United States District Court for the Eastern District of
New York, alleging (1) breach of contract; (2) conversion; (3) unjust enrichment; (4) fraudulent
inducement; (5) money had and received; (6) breach of fiduciary duty; and (7) an accounting.
See Murphy, 2014 U.S. Dist. LEXIS 134097, at *7. The Snyders answered the complaint on
November 12, 2010. Id. at *8. A farcical four years of litigation ensued, in which the Snyders
abruptly shuffled attorneys, neglected to respond to discovery, and failed to appear at hearings
and conferences held by the District Court.
On September 15, 2011, as a sanction for the defendants’ “obstreperous conduct
regarding the discovery responses” and “blatant[] [disregard[] [of] prior Orders,” the District
Court struck the Snyders’ answer and entered a default judgment against the Snyders and their
companies. Id. at *10. While the court was calculating the Murphys’ damages, the Snyders
appeared through new counsel and moved to vacate the default judgment. On March 29, 2013,
the District Court vacated the default judgment. Subsequently, the Snyders’ attorneys—who had
changed once again—moved to withdraw because they “had been unable to communicate with
their clients and had accrued large sums of outstanding attorneys’ fees.” Id. at *15. The District
Court granted the motion to withdraw, and the Snyders appeared pro se. The court warned the
Snyders that their corporations could not proceed pro se, and that “failure to retain counsel for
the corporate entities would very likely result in default judgments being entered against them.”
Id. Despite the warning, the Snyders never retained new counsel for their companies.
After they appeared pro se, the Snyders “provided no responses” to discovery, “failed or
refused to appear at their scheduled depositions,” and neglected to attend several hearings before
the court. Id. at *17. The Murphys moved the District Court to strike the Snyders’ answer as a

5

sanction and enter a default judgment against the Snyders and their companies. Concluding that
the Snyders had “consistently disregarded their discovery obligations as well as multiple Orders
of the Court,” id. at *20, and had continued in their “recalcitrant conduct . . . despite numerous
warnings and the issuance of multiple sanctions,” id. at *22–*24, the District Court granted the
Murphys’ motion and struck the Snyders’ answer.
The District Court proceeded to determine whether the Murphys’ claims “set forth a valid
cause of action,” as required for entry of default judgment. Id. at *24. The Court concluded that
the Murphys had “adequately pleaded a breach of contract claim.” Id. at *26. The alleged facts
plausibly indicated that the Murphys “entered into [two] oral investment agreement[s]” with the
Snyders; that they transferred a total of $375,000 in fulfillment of the agreements; that the
Snyders “breached the contract[s] by failing to return [the Murphys’] initial investment[s], in
addition to the [twenty percent] return[s] on their investment[s]”; and that the Murphys suffered
damages. Id. at *26–*27. The District Court also held that the Snyders separately breached the
agreement concerning the Bible Street Project “by failing to purchase the Bible Street property,
and instead, us[ing] [the Murphys’] monies for other projects and purposes without notice to or
authorization by [the Murphys].” Id. at *27. Thus, the Court held that the Murphys had
“successfully set out the elements of a claim for breach of contract.” Id.
The District Court declined to enter default judgment on the Murphys’ other claims,
however. It concluded that the remaining claims were either “duplicative” of the breach of
contract claim, see id. at *28–*29 (conversion); id. at *31–*32 (fraudulent inducement); id. at
*35–*36 (breach of fiduciary duty), or else were precluded due to the existence of a valid
contract. Id. at *30–*31 (unjust enrichment); id. at *36–*37 (money had and received); id. at
*38–*39 (accounting). The Court also declined to impose punitive damages on the Snyders

6

because it had held that “default judgment [would] not be entered on the breach of fiduciary duty
claim.” Id. at *47. As a result, the District Court granted the Murphys’ motion for default
judgment on the breach of contract claim only, and awarded them $450,000 in compensatory
damages, plus interest and costs. Id. at *51–*52. Judgment entered on September 23, 2014.
On April 23, 2015, the Snyders filed a petition for bankruptcy in the United States
Bankruptcy Court for the District of Connecticut.5 On July 27, 2015, the Murphys initiated an
adversary proceeding by filing a three-count complaint seeking a declaration that the District
Court judgment was nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(4), & (a)(6).
The Snyders filed an answer on December 11, 2015. On August 10, 2016, the Murphys filed a
motion for summary judgment on all three counts, which the Snyders opposed on September 14,
2016. On May 5, 2017, the Bankruptcy Court issued an order granting the Murphys’ motion with
respect to Counts Two and Three of the Adversary Complaint (alleging nondischargeability
under section 523(a)(4) and section 523(a)(6), respectively) and denying the motion with respect
to Count One (alleging nondischargeability under section 523(a)(2)(A)).
The Snyders timely appealed on May 17, 2017. Doc. No. 1.
III.

Discussion
A discharge under Chapter 7 of the Bankruptcy Code “discharges the debtor from all

debts that arose before the date of the order for relief.” 11 U.S.C. § 727(b). Such a discharge
does not, however, discharge any debt incurred through (among other things):
(4) . . . fraud or defalcation while acting in a fiduciary capacity,
embezzlement, or larceny; [or]
...

5

The Snyders’ petition originally sought relief under Chapter 11, but was converted to a Chapter
7 proceeding on June 1, 2016.
7

(6) . . . willful and malicious injury by the debtor to another entity or to the
property of another entity . . . .
Id. at § 523(a). “A creditor seeking to establish nondischargeability under § 523(a) must do so by
the preponderance of the evidence.” Ball v. A.O. Smith Corp., 451 F.3d 66, 69 (2d Cir. 2006).
“Parties may invoke collateral estoppel to preclude relitigation of the elements necessary
to meet a § 523(a) exception.” Id. Here, the Bankruptcy Court applied collateral estoppel to the
District Court Judgment and held that the Snyders’ debt was nondischargeable because it had
been incurred through “defalcation while acting in a fiduciary capacity,” In re Snyder, 2017 WL
1839122 (D. Conn. May 5, 2017), at *10; “embezzlement,” id. at *11; and/or “willful and
malicious injury . . . to another.” Id. at *12. The Snyders argue that the District Court Judgment
did not render their debt nondischargeable because, among other things, the judgment “had no
collateral estoppel effect as to Defendants’ intent.” Appellants’ Br., Doc. No. 16, at 37.
First, I will consider whether the Bankruptcy Court’s application of collateral estoppel
was proper. If it was, then I will proceed to assess whether the District Court Judgment
establishes as a matter of law the nondischargeability of the Snyders’ debt.
A. Collateral estoppel
“[A] bankruptcy court [may] properly give collateral estoppel effect to those elements of
the claim that are identical to the elements required for discharge and which were actually
litigated and determined in the prior action.” Grogan v. Garner, 498 U.S. 279, 285 (1991). Under
federal law—which courts “apply to establish the preclusive effect of a prior federal judgment,”
Ball, 451 F.3d at 69—collateral estoppel applies only when:
(1) the identical issue was raised in a previous proceeding;
(2) the issue was actually litigated and decided in the previous proceeding;
(3) the party had a full and fair opportunity to litigate the issue; and
8

(4) the resolution of the issue was necessary to support a valid and final
judgment on the merits.
Id. The party seeking to apply collateral estoppel must establish the doctrine’s elements by a
preponderance of the evidence. See Grogan, 498 U.S. at 287.
As an initial matter, I note that the District Court Judgment was entered on default, not
litigated on the merits. The Snyders assert, correctly, that “a default judgment will not normally
support the application of collateral estoppel because ‘in the case of a judgment entered by
confession, consent, or default, none of the issues are actually litigated.’” Appellants’ Br., Doc.
No. 16, at 20 (quoting In re Bush, 62 F.3d 1319, 1323–24 (11th Cir. 1995)). Nevertheless,
several circuit courts—and district courts within the Second Circuit—“recognize an exception to
the ‘actually litigated’ requirement,” which applies “when the party sought to be precluded
actually participated in the prior litigation and had a full and fair opportunity to litigate, but the
issue was resolved by default as a sanction on account of that party’s obstructive behavior.” In re
Corey, 394 B.R. 519, 527–28 (10th Cir. BAP 2008), aff’d, 583 F.3d 1249 (10th Cir. 2009); see In
re Adler, Coleman Clearing Corp., 205 F. App’x 856, 857 n.1 (2d Cir. 2006) (summary order)
(observing that “[s]everal other circuits have allowed a default judgment entered as a procedural
sanction to be accorded preclusive effect in a subsequent action,” but declining to decide whether
to adopt that rule). Here, the District Court Judgment “was not an ordinary default judgment.”
Corey, 583 F.3d at 1253 (quoting FDIC v. Daily (In re Daily), 47 F.3d 365, 368 (9th Cir. 1995)).
The Snyders extensively participated in the District Court proceedings over the course of several
years, and “the only reason that the first court did not have to assess the merits of the [case] . . . is
that the losing part[ies’] misconduct forfeited [their] right to such an assessment.” See id.; cf. In
re Bugnacki, 439 B.R. 12, 25 (Bankr. D. Conn. 2010) (applying collateral estoppel to a default
judgment when the defendant “significant[ly] participat[ed]” in the litigation, “engaged in
9

improper litigation tactics[,] and repeatedly failed to comply with various discovery requests,”
causing the default judgment to be entered as a sanction). Because the Snyders “had a ‘full and
fair opportunity’ to defend against the lawsuit but chose not to do so,” I conclude that the District
Court Judgment falls within the exception to the “actually litigated” requirement. See In re
Delaney, 504 B.R. 738, 752 (Bankr. D. Conn. 2014).
In the ruling below, the Bankruptcy Court held that collateral estoppel applied to the
default judgment, and “g[ave] collateral estoppel effect” to “[t]he issues on which the District
Court made specific findings.” Snyder, 2017 WL 1839122, at *8. The Bankruptcy Court
identified those issues as (i) “that both [the Snyders] are liable,” id.; (ii) “that [the Snyders]
breached their contract with [the Murphys],” id.; (iii) “that damages should be awarded to [the
Murphys] in the amount of $450,000,” id.; and (iv) “that [the Snyders] and [the Murphys] were
fiduciaries under New York law.” Id. I agree with the Bankruptcy Court that collateral estoppel
applies with respect to the first three issues, which “w[ere] raised in [the] previous proceeding, . .
. actually litigated and decided,” subject to “a fully and fair opportunity to litigate,” and
“necessary to support a valid and final judgment on the merits.”6 See Ball, 451 F.3d at 69. Hence,
the Snyders may not relitigate those issues in the bankruptcy proceedings.
Collateral estoppel does not apply, however, with respect to whether the Snyders were
fiduciaries. Although the District Court indicated that “a fiduciary relationship existed between .
. . Joseph Murphy and his . . . brother-in-law Stuart Snyder,” it nonetheless denied the Murphys’
motion to enter default judgment on their breach of fiduciary claim because that claim was
“entirely derivative of the underlying breach of contract.” Murphy, 2014 U.S. Dist. LEXIS

6

As indicated in notes 2 and 3, supra, the District Court’s findings that Freesman was the
Snyders’ attorney and that the Murphys did not consent to the use of their money for the
Demarest Project are entitled to estoppel effect for the same reasons.
10

134097, at *34–*35. Thus, the District Court’s identification of a fiduciary relationship between
the parties was “nonessential” and “ha[d] the characteristics of dicta.” See Trikona Advisers Ltd.
v. Chugh, 846 F.3d 22, 32 (2d Cir. 2017) (quoting Restatement (Second) of Judgments § 27 cmt.
h). Because the District Court Judgment was “not dependent on the determination” that the
Snyders and the Murphys were in a fiduciary relationship, the Snyders “may relitigate th[at]
issue in a subsequent action.” Id. (citing Restatement (Second) of Judgments § 27 cmt. h).
B. Section 523(a)(4)
“Section 523(a)(4) of the Federal Bankruptcy Code provides that an individual cannot
obtain a bankruptcy discharge from a debt ‘for fraud or defalcation while acting in a fiduciary
capacity, embezzlement, or larceny.” Bullock v. BankChampaign, N.A., 569 U.S. 267, 269
(2013) (quoting 11 U.S.C. § 523(a)(4)). That exception, “like most, must be narrowly
construed.” In re Hyman, 502 F.3d 61, 66 (2d Cir. 2007). The Murphys claim—and the
Bankruptcy Court held—that the District Court Judgment is nondischargeable under section
523(a)(4) because the debt was incurred through (1) defalcation while acting in a fiduciary
capacity and/or (2) embezzlement. I consider each exception in turn.
1. Defalcation
To establish nondischargeability for defalcation, the creditor must show “(i) the existence
of a fiduciary relationship between the debtor and the objecting creditor, and (ii) a defalcation
committed by the debtor in the course of that relationship.” In re Nofer, 514 B.R. 346, 353
(Bankr. E.D.N.Y. 2014). Because “[t]he question of whether a defalcation has occurred is
reached only when the threshold determination that the debtor acted in a fiduciary capacity has
been made,” In re Hayes, 183 F.3d 162, 170 (2d Cir. 1999), I begin by addressing whether the
Snyders and the Murphys were in a fiduciary relationship.
11

a. Fiduciary relationship
In order for the Murphys to prevail under the defalcation exception of section 523(a)(4),
they “must initially prove that [the Snyders] owed a fiduciary duty to them.” In re Richey, 103
B.R. 25, 31 (Bankr. D. Conn. 1989). Unfortunately, the concept of a fiduciary duty is “elastic”
and “anything but clear,” United States v. Chestman, 947 F.2d 551, 567, 570 (2d Cir. 1991), and
the Bankruptcy Code “does not clarify the meaning of the term ‘fiduciary capacity’ as used in
Section 523(a)(4).” Hayes, 183 F.3d at 167. Moreover, “[t]he federal law definition of fiduciary
is different from”—and “more restrictive” than—“the traditional common law definition.”
Richey, 103 B.R. at 31. Still, general principles of fiduciary law are somewhat instructive.
The “paradigmatic” fiduciary relationship “involves discretionary authority and
dependency: One person depends on another—the fiduciary—to serve his interests.” Chestman,
947 F.2d at 569. Thus, a person “acts in a ‘fiduciary capacity’ when ‘the business which he
transacts, or the money or property which he handles, is not his own or for his own benefit, but
for the benefit of another person, as to whom he stands in a relation implying and necessitating
great confidence and trust on the one part and a high degree of good faith on the other part.’” Id.
at 568–69 (quoting Black’s Law Dictionary 564 (5th ed. 1979)). In the context of section
523(a)(4), the Second Circuit has indicated that two parties are in a fiduciary relationship when
there is “a difference in knowledge or power between fiduciary and principal which . . . gives the
former a position of ascendancy over the latter.” Hayes, 183 F.3d at 167.
The scope of section 523(a)(4)’s defalcation exception “is a question of federal law,” but
one that “frequently turns upon obligations attendant to relationships governed by state law.” Id.
at 166. Even though “not every state-law fiduciary is a Section 523(a)(4) ‘fiduciary,’” In re Hall,
483 B.R. 281, 292 (Bankr. D. Conn. 2012), “state law can be an important factor in determining
whether someone acted in a fiduciary capacity under Section 523(a)(4).” Hayes, 183 F.3d at 166.
12

Therefore, the initial question is whether the Snyders owed the Murphys fiduciary duties under
state law—here, the law of New York.7
Four elements are “essential to the establishment of a fiduciary relationship” under New
York law, St. John’s Univ. v. Bolton, 757 F. Supp. 2d 144, 166 (E.D.N.Y. 2010):
(1) the vulnerability of one party to the other which
(2) results in the empowerment of the stronger party by the weaker[,] which
(3) empowerment has been solicited or accepted by the stronger party[,] and
(4) prevents the weaker party from effectively protecting itself.
Id. Fiduciary duties may arise both from “technical fiduciary relations” and from “those informal
relations which exist whenever one [person] trusts in, and relies upon, another.” Allen v.
WestPoint-Pepperell, 945 F.2d 40, 45 (2d Cir. 1991) (quoting Penato v. George, 52 A.D.2d 939,
942 (2d Dep’t 1976)). “Examples of such informal fiduciary relationships . . . include priest and
parishioner, bank and depositor, majority and minority stockholder, and close friends or family
members.” Brass v. Am. Film Techs., 987 F.2d 142, 151 (2d Cir. 1993) (citing Restatement

7

The Snyders argue, as they did before the Bankruptcy Court, that “New Jersey provides the
relevant state law as to whether Defendants owed Plaintiffs a fiduciary duty under §523(a)(4).”
Appellants’ Br., Doc. No. 16, at 27. But the District Court applied New York law in ruling on the
Murphys’ breach of contract claim. The Snyders not only failed to advance their argument in
favor of New Jersey law before the District Court, but also they did not bother to appeal the
District Court ruling. See Trikona Advisers Ltd. v. Chugh, 846 F.3d 22, 31 (2d Cir. 2017)
(“[I]mplied consent is . . . sufficient to establish the applicable choice of law.”); Reed Constr.
Data v. McGraw-Hill Cos., 49 F. Supp. 3d 385, 423 (S.D.N.Y. 2014) (“A party can waive a
choice-of-law argument.”). Having waived their argument in favor of New Jersey law before the
District Court, the Snyders are estopped from relitigating the choice-of-law issue here. See
Weston Funding Corp. v. Lafayette Towers, 550 F.2d 710, 715 (2d Cir. 1977) (“The choice of
. . . law issue is res judicata between the parties since it actually was litigated and decided.”); Nw.
Airlines v. Astraea Aviation Servs., 930 F. Supp. 1317, 1328 n.11 (D. Minn. 1996) (“Th[e]
Court’s determination of the applicable law is part and parcel of its final resolution of the entire
‘claim,’ and thus, if collateral estoppel is applied, the choice-of-law determination cannot be
relitigated.”); cf. In re Coudert Bros. LLP, 673 F.3d 180, 190–91 (2d Cir. 2012) (“[I]t would be
fundamentally unfair . . . to allow the defendant . . . to use a device of federal law (the
bankruptcy code) to choose the forum and accompanying choice of law . . . .”).
13

(Second) of Torts § 551 cmt. f). In addition, certain business relationships inherently entail
fiduciary obligations, such as partnerships and joint ventures. See N. Shipping Funds I v. Icon
Capital Corp., 921 F. Supp. 2d 94, 102 (S.D.N.Y. 2013). Whether a fiduciary relationship exists
is “necessarily fact-specific.” EBC I v. Goldman Sachs & Co., 5 N.Y.3d 11, 19 (2005), and the
court must consider “all the circumstances and conduct relevant to understanding the parties’
relationship.” Bolton, 757 F. Supp. 2d at 166.
Here, the undisputed facts show that the Snyders were in a fiduciary relationship with the
Murphys under New York law. Although “mere kinship does not,” of itself, “create a fiduciary
relationship,” Chestman, 947 F.2d at 568; but see Restatement (Second) of Torts § 551 cmt. f
(“Members of the same family normally stand in a fiduciary relation to one another . . . .”), close
friends and family members may reasonably be expected to “trust[] [one] another.” Marini v.
Adamo, 995 F. Supp. 2d 155, 199 (E.D.N.Y. 2014) (quoting Brass, 987 F.2d at 151), aff’d, 644
F. App’x 33 (2d Cir. 2016) (summary order). In Marini v. Adamo, for example, the plaintiff and
the defendant “were close friends for ten years before they began conducting business.” See id.
Not only did the parties “spen[d] considerable time socializing with one another and traveling
together,” but also they became “godparents to each other’s children.” Id. at 165. The district
court held—and the Second Circuit affirmed—that the parties’ “close relationship” was
“sufficient to create a fiduciary relationship,” because the plaintiff’s “complete ‘confidence and
reliance’” in the defendant “allowed [the defendant] to ‘exercise [ ] control and dominance.’”
Marini, 644 F. App’x at 35 (quoting Marini, 995 F. Supp. 2d at 202). In the present case, as in
Marini, the Murphys and the Snyders “had a very close relationship, . . . celebrated holidays and
vacationed together,” and “enjoyed a relationship of personal trust.” Bankr. Compl., App’x at 4;
Bankr. Answer., App’x at 15–16. The parties’ family relationship “far exceeded that of an arms-

14

length commercial relationship,” Marini, 644 F. App’x at 35, and indicates that the Murphys
“reasonably trusted” the Snyders to hold themselves to “something stricter than the morals of the
market place.” See Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 972 (2d Cir.
1989) (quoting Meinhard v. Salmon, 249 N.Y. 458, 464 (1928) (Cardozo, C.J.)).
Another indication that the parties were in a fiduciary relationship is that the Murphys
“reasonably relied on [the Snyders’] superior expertise or knowledge.” Bolton, 757 F. Supp. 2d
at 167 (quoting Wiener v. Lazard Freres & Co., 241 A.D.2d 114, 122 (1st Dep’t 1998)). In
Marini, the defendant, a rare coin dealer, defrauded the plaintiff by selling him rare coins at
“grossly inflated” values over several years. Marini, 995 F. Supp. 2d at 163. Although the
plaintiff was a successful businessman who built and operated his own sweater manufacturing
enterprise, he was “extremely unsophisticated regarding coins.” Id. at 177. The plaintiff “never
bought coins from anyone besides [the defendant], . . . never sold coins to anyone other than [the
defendant],” and “never selected any coins; he solely relied on the advice and representations of
[the defendant] regarding which coins to buy.” Id. at 166. The court concluded that in light of the
plaintiff’s “lack of sophistication regarding coins” and the nature of the parties’ relationship, it
was “reasonable” for the plaintiff to rely on the defendant’s “superior knowledge.” Id. at 177,
202. Here, too, Stuart Snyder’s decades of experience in custom home construction necessarily
gave him and his wife far “superior . . . knowledge” of the market relative to the Murphys, who
appear to have had no relevant experience. See Bolton, 757 F. Supp. 2d at 167 (quoting
Wiener, 241 A.D.2d at 122). Furthermore, as in Marini, the Murphys only seem to have done
business with the Snyders and “solely relied on the advice and representations” of the Snyders
regarding where to invest. Marini, 995 F. Supp. 2d at 166. Because of the parties’ “very close
relationship” and “personal trust,” Bankr. Compl., App’x at 4; Bankr. Answer, App’x at 15, as

15

well as the Snyders’ “superior knowledge” of the market, Marini, 995 F. Supp. 2d at 202, the
Murphys’ reliance was reasonable. Therefore, “it is clear that [the Snyders] acted as [the
Murphys’] fiduciar[ies]” under New York law. See Marini, 995 F. Supp. 2d at 202.
Even apart from the particular characteristics of the Snyders’ and the Murphys’
relationship, the parties were fiduciaries under New York law because they were engaged in a
joint venture. “Under New York law, participants in a joint venture owe one another the same
fiduciary duties that inhere between members of a partnership.” N. Shipping Funds I, 921 F.
Supp. 2d at 102 (quoting Argilus, LLC v. PNC Fin. Servs. Grp., 419 F. App’x 115, 119 (2d Cir.
2011) (summary order)). Formation of a joint venture requires five elements:
(1) two or more persons must enter into a specific agreement to carry on
an enterprise for profit;
(2) their agreement must evidence their intent to be joint venturers;
(3) each must make a contribution of property, financing, skill,
knowledge, or effort;
(4) each must have some degree of joint control over the venture; and
(5) there must be a provision for the sharing of both profits and losses.
Dinaco, Inc. v. Time Warner, 346 F.3d 64, 67–68 (2d Cir. 2003). “[T]he absence of any one of
these elements is fatal to the establishment of a joint venture.” N. Shipping Funds I, 921 F. Supp.
2d at 102. I conclude that all five elements are met.
First, the Murphys and the Snyders entered into two “specific agreement[s]” to engage in
real estate development “for profit.” Dinaco, Inc., 346 F.3d at 67–68. Second, the agreements
“evidence[d] [the parties’] intent to be joint venturers,” id. at 68, because both characterized the
Murphys and the Snyders as “partners.” See Snyder, 2017 WL 1839122, at *4. Third, “each
[party] ma[de] a contribution” to the joint venture, the Murphys in the form of “financing,” the
Snyders in the form of “skill” and “knowledge.” Dinaco, Inc., 346 F.3d at 68; see Cosy Goose
16

Hellas v. Cosy Goose USA, 581 F. Supp. 2d 606, 620 (S.D.N.Y. 2008) (“[P]arties may evince
their intent to be bound as joint venturers by commingling their property, skills, and efforts such
that their individual contributions are subject to their co-venturers’ actions, efforts, and
failures.”). Fourth, the Murphys and the Snyders both “ha[d] some degree of joint control over
the venture,” Dinaco, Inc., 346 F.3d at 68, even though the parties did not “actually exercise the
same degree of management control.” Richbell Info. Servs. v. Jupiter Partners, 309 A.D.2d 288,
299 (1st Dep’t 2003). “The inquiry as to the existence of this factor is limited to whether a
member of the venture had any measure of control,” id., and a so-called “silent partner” may still
participate in a joint venture.8 See Meinhard, 29 N.Y. at 462 (parties entered into a “joint
venture” to invest in real estate, and were “subject to fiduciary duties akin to those of partners,”
even though only one party “was to have sole power to ‘manage, lease, underlet and operate’ the
building”). Finally, the parties’ oral agreement contained “a provision for the sharing of both
profits and losses.” Dinaco, Inc., 346 F.3d at 68. The Snyders were to keep profits after the
Murphys received their twenty percent return, and—as the Snyders emphasize—both parties
bore the “risk [of losses] inherent . . . [in] a real estate project in which there were no guarantees
of any profit.” See Appellants’ Br., Doc. No. 16, at 35.
Hence, even if the Snyders did not owe the Murphys fiduciary duties by virtue of their
superior knowledge and the parties’ close relationship, the Snyders were “coadventure[r]s,
subject to fiduciary duties akin to those of partners.” Meinhard, 29 N.Y. at 462. Indeed, even
under a joint venture theory, the Snyders still bore “[t]he heavier weight of duty,” because they

8

That Joseph Murphy allegedly “visit[ed] . . . job sites in Haworth to check up on his
investment” suggests that the Murphys had some “measure of control” over the venture. See
Appellants’ Br., Doc. No. 16, at 13.
17

were not only “coadventurer[s] . . . , but . . . manager[s] as well.” See id. Hence, I conclude that,
under New York law, the Snyders bore fiduciary obligations to the Murphys.9
I also conclude that the Snyders owed fiduciary duties to the Murphys under federal law.
“[T]here are federal limits on the ability of state law to expand the effects” of section 523(a)(4),
lest states “deny a fresh start to their debtors by declaring all contractual relations fiduciary.”
Hayes, 183 F.3d at 166–67. Here, however, the Snyders’ relationship with the Murphys falls
comfortably within the federal definition of “fiduciary capacity.” Under federal law, fiduciary
relationships are “not limited to express trusts” or “technical trust[s].”10 Id. at 167–68. Instead,
fiduciary relationships are those that “involve a difference in knowledge or power between
fiduciary and principal which . . . gives the former a position of ascendancy over the latter.” Id.
at 167. Here, the Snyders’ decades of experience gave them “superior expertise” in and “superior

9

The Snyders argue that Doreen Snyder was not a fiduciary and cannot have committed
defalcation because “there is no evidence she had any involvement whatsoever with Stuart’s
businesses at the time of [the Murphys’] investments, or with [the Murphys’] investments
themselves.” Appellants’ Br., Doc. No. 16, at 24. Doreen still may be liable if Stuart acted as her
agent, however. Although “the spousal relationship does not automatically impose vicarious
liability on one spouse for the wrongful acts of the other,” In re Budnick, 469 B.R. 158, 171
(Bankr. D. Conn. 2012), “much less evidence is required to establish a principal and agent
relationship between husband and wife than between nonspouses.” In re Bear Stearns Cos. Secs.,
Derivative, and ERISA Litig., 308 F.R.D. 113, 121 (S.D.N.Y. 2015). “Under . . . New York law,
a spouse’s actions may bind the other spouse under an implied agency theory when the
circumstances suggest that one either has the authority to bind the other or where one acquiesces
to the other’s actions.” Bear Stears Cos., 308 F.R.D. at 121 (citing Nalaskowski v. Golowicz, 187
Misc. 725 (Sup. Ct. 1946)). Here, the District Court held that Doreen Snyder was liable to the
Murphys for breach of contract, see Snyder, 2017 WL 1839122, at *4 n.4, a determination that
the Snyders did not directly challenge or appeal. Assuming, arguendo, that Doreen was not
involved in Stuart’s businesses, in order to hold Doreen liable for breach of contract, the District
Court must implicitly have concluded that the Snyders were each other’s agents. That
determination—“essential to the judgment” of Doreen Snyder’s liability, see Arizona v.
California, 530 U.S. 392, 414 (2000)—cannot be challenged collaterally here.
10

For example, “the attorney-client relationship, although usually not involving a technical
trustee or express trust, has long been understood to be a fiduciary relationship within the
meaning of the defalcation exception.” In re Hayes, 183 F.3d 162, 168 (2d Cir. 1999).
18

knowledge” of housing investments relative to the Murphys, Marini, 995 F. Supp. 2d at 202;
Bolton, 757 F. Supp. 2d at 167, which enabled them to occupy “a position of ascendancy” in the
parties’ business interactions. Hayes, 183 F.3d at 167. Therefore, I hold that, as a matter of
federal and New York law, the Snyders were in a fiduciary relationship with the Murphys.
b. Defalcation
Having concluded that the Snyders “act[ed] in a fiduciary capacity,” I proceed to consider
whether they committed a “defalcation.” See 11 U.S.C. § 523(a)(4). “Defalcation” is an archaic
term for a “breach of trust” or “a non-fraudulent debt.” Hyman, 502 F.3d at 66 n.1 (quoting
Black’s Law Dictionary (8th ed. 2004); Oxford English Dictionary (2d ed. 1989)). In the
bankruptcy context, defalcation requires “a culpable state of mind” in the form of intentional,
knowing, or reckless conduct. Bullock v. BankChampaign, N.A., 569 U.S. 267, 269, 273–74
(2013). Where actual knowledge of wrongdoing is absent, the fiduciary must at least have
“‘consciously disregard[ed]’ (or [been] willfully blind to) ‘a substantial and unjustified risk’ that
his conduct w[ould] turn out to violate a fiduciary duty.” Id. at 274 (quoting ALI, Model Penal
Code § 2.02(2)(c) (1985)). “That risk ‘must be of such a nature and degree that, considering the
nature and purpose of the actor’s conduct and the circumstances known to him, its disregard
involves a gross deviation from the standard of conduct that a law-abiding person would observe
in the actor’s situation.’” Id. (quoting Model Penal Code § 2.02(2)(c)) (emphasis in Bullock).
The Bankruptcy Court concluded that the Snyders committed defalcation because they
engaged in at least “reckless behavior.” Snyder, 2017 WL 1839122, at *9. I agree. The Snyders
never returned the Murphys’ investment or provided the promised twenty percent return on
either project, and—in the case of the Bible Street Project—they never even bought the property
that was supposed to be developed. Instead, the Snyders concede that they used the Murphys’
investment in the Bible Street Project “for personal expenses . . . immediately after the
19

[Murphys] transferred the monies to them.” Id. Bank records “confirm that substantially all of
the $275,000[] transferred to the [Snyders]” was spent within two months. Id. Although the
Snyders claim that the money “spen[t] . . . on personal expenses . . . totaled less than $20,000,”
Appellants’ Br., Doc. No. 16, at 34, uncontested evidence in the record suggests that the total
could be much more. For example, the Snyders acknowledge that, three days after the Murphys
transferred the money to a virtually empty account, more than $30,000 was withdrawn from that
account to pay credit card debt, and more than $18,000 more was withdrawn for the same
purpose over the following two months. See Local Rule 56(a)2 Statement, App’x at 339. The
Snyders also admit that they withdrew more than $10,000 in cash from the same account in
September and October of 2016. Id. at 338. At any event, even accepting the Snyders’ low
estimate, misappropriating 10 percent of the Murphys’ investment would still constitute a
reckless breach of fiduciary duty.11 See Indep. Asset Mgmt. v. Zanger, 538 F. Supp. 2d 704, 710
(S.D.N.Y. 2008) (“self-interested behavior . . . [is] a breach of . . . fiduciary duty”). The District
Court Judgment is nondischargeable as a defalcation under section 523(a)(4).

11

There is not the same evidence of deliberate malfeasance with respect to the Haworth Project,
and the Snyders claim that the Murphys’ investment in that project was only in the possession
and control of another developer, Michael Maisel. See Appellants’ Br., Doc. No. 16, at 11. But
the District Court held that the Snyders—not Maisel—were liable for breaching the Haworth
Project agreement. Murphy, 2014 U.S. Dist. LEXIS 134097, at *26. Even though the District
Court held that the Murphys could not recover for that breach of contract as a breach of fiduciary
duty because in New York, a plaintiff cannot recover on “[a] cause of action for breach of
fiduciary duty which is merely duplicative of a breach of contract claim,” see William Kaufman
Org. v. Graham & James LLP, 269 A.D.2d 171, 173 (1st Dep’t 2000), “conduct amounting to
breach of a contractual obligation may also constitute the breach of a [fiduciary] duty . . .
independent of such contract.” Bullmore v. Ernest & Young Cyman Islands, 45 A.D.3d 461, 463
(1st Dep’t 2007). Here, the “same conduct” that breached the Haworth Project agreement also
violated the Snyders’ fiduciary duties to the Murphys, see Mandelblatt v. Devon Stores, 132
A.D.2d 162, 167 (1st Dep’t 1987), and so the breach of contract adjudicated by the Bankruptcy
Court also constituted a nondischargeable defalcation under section 523(a)(4). See In re
Barksdale, 438 B.R. 25, 32–33 (Bankr. N.D.N.Y. 2010).
20

2. Embezzlement
The Bankruptcy Court also held that the District Court Judgment was nondischargeable
because the debt was obtained through embezzlement. Here, the Snyders’ arguments are
somewhat stronger. “Section 523(a)(4) embezzlement is determined based on federal common
law,” and is defined as “the fraudulent appropriation of property by a person to whom such
property has been entrusted, or into whose hands it has lawfully come.” In re Carrano, 530 B.R.
540, 558 (Bankr. D. Conn. 2015). “In order ‘[t]o prove embezzlement, the creditor must show by
a preponderance of the evidence (1) that the debtor appropriated the subject funds for his own
benefit and (2) that he did so with fraudulent intent or deceit.’” Id. (quoting Conn. Att’ys Title
Ins. Co. v. Budnick (In re Budnick), 469 B.R. 158, 176 (Bankr. D. Conn. 2012)). Unlike
defalcation, embezzlement requires a higher mental state of “bad faith or immortality.” see
Bullock, 569 U.S. at 273. Fraudulent intent “may be determined from the facts and circumstances
surrounding the act,” Carrano, 530 B.R. at 558, but the Second Circuit has reminded lower
courts that “caution must be exercised in granting summary judgment when state of mind is in
issue.” Res. Devs. v. Statue of Liberty–Ellis Island Found., 926 F.2d 134, 141 (2d Cir. 1991).
The Bankruptcy Court held that “the underlying debt was obtained by embezzlement”
because the Snyders “rightfully possessed [the Murphys’] property” and “appropriated the
property for use other than the use for which the property was entrusted,” in circumstances that
“imply a fraudulent intent.” Snyder, 2017 WL 1839122, at *10. The first two conclusions are
effectively uncontested: the record conclusively shows that that Snyders lawfully obtained the
Murphys’ money for the purpose of making investments, but then appropriated the money “for
other projects and purposes”—including the Snyders’ own personal expenses—“without notice
to or authorization by the plaintiffs.” See id.; Murphy, 2014 U.S. Dist. LEXIS 134097, at *27.

21

With respect to the Snyders’ mental state, I agree with the Bankruptcy Court that a trier
of fact appropriately could find that that the circumstances “imply a fraudulent intent” because
the Snyders not only failed to make the promised investment, but also began to use the Murphys’
money for personal expenses within days of receiving it. Snyder, 2017 WL 1839122, at *10; cf.
In re Nofer, 514 B.R. 346, 356–57 (Bankr. E.D.N.Y. 2014) (“A partner or employee who diverts
a corporation’s funds for his or her own use commits embezzlement within the meaning of §
523(a)(4).”). I am less confident, though, that a jury would be required to find fraudulent intent,
especially in light of the Second Circuit’s repeated admonitions that “summary judgment is
generally inappropriate where questions of intent and state of mind are implicated.” Gelb v. Bd.
of Elections, 224 F.3d 149, 157 (2d Cir. 2000); see also Morgan v. Prudential Grp., 527 F. Supp.
257, 959 (S.D.N.Y. 1981) (“[A] particularly heavy burden [is] imposed on one who moves for
summary judgment with respect to a state of mind.”), aff’d mem. 729 F.2d 1443 (2d Cir. 1983). It
is a close question whether the evidence in this case conclusively demonstrates that the Snyders
acted in bad faith, such that “no reasonable [trier of fact] could find otherwise.” See Evans Med.
v. Am. Cyanamid Co., 11 F. Supp. 2d 338, 360 (S.D.N.Y. 1998), aff’d, 215 F.3d 1347 (Fed. Cir.
1999). I need not decide the issue, however, because the nondischargeability of the District Court
Judgment as a defalcation provides sufficient basis to affirm the Bankruptcy Court.
For the foregoing reasons, I affirm the Bankruptcy Court’s award of summary judgment
to the Murphys on Count Two of the Adversary Complaint.
C. Section 523(a)(6)
“Section 523(a)(6) of the Bankruptcy Code provides that a debt ‘for willful and malicious
injury by the debtor to another’ is not dischargeable.” Kawaauhau v. Geiger, 523 U.S. 57, 59
(1998). That exception requires “a deliberate or intentional injury, not merely a deliberate or
intentional act that leads to injury.” Id. at 61. “The injury caused by the debtor must also be
22

malicious, meaning ‘wrongful and without just cause or excuse, even in the absence of personal
hatred, spite, or ill-will.’” Ball, 451 F.3d at 69 (quoting In re Stelluti, 94 F.3d 84, 87 (2d Cir.
1996)). “Malice may be implied by the acts and conduct of the debtor in the context of the
surrounding circumstances,” id. (internal quotation marks and brackets omitted), and “will be
found where the debtor has breached a duty to the plaintiff founded in contract, statute or tort
law, willfully in the sense of acting with deliberate intent, in circumstances where it is evident
that the conduct will cause injury to the plaintiff and under some aggravating circumstance.” In
re Hambley, 329 B.R. 382, 402 (Bankr. E.D.N.Y. 2005) (internal quotation marks omitted).
In the present case, the Bankruptcy Court held that the Snyders inflicted a “willful and
malicious injury” upon the Murphys because they intentionally “breached the contract[s]” with
the Murphys and “willfully used the Plaintiffs[’] monies for personal expenses.” Snyder, 2017
WL 1839122, at *11. Although the Snyders’ “knowing breach of contract” does not satisfy the
elements of section 523(a)(6), see Kawaauhau, 523 U.S. at 62, their use of the Murphys’ money
for personal expenses does. The Snyders’ concededly “unauthorized use of [the Murphys’]
money constitutes conversion because it was an unauthorized act which deprive[d] the owner[s]
of the use of the property.” In re Leigh, 165 B.R. 203, 215 (Bankr. N.D. Ill. 1993). Furthermore,
the tortious injury inflicted by the Snyders was intentional—in the sense of “substantially certain
to cause injury,” see In re Kane, 755 F.3d 1285, 1293 (11th Cir. 2014); accord AUSA Life Ins.
Co. v. Ernest & Young, 206 F.3d 202, 221 (2d Cir. 2000) (“If the actor knows that the
consequences are certain, or substantially certain, to result from his act, and still goes ahead, he
is treated by the law as if he had in fact desired to produce the result.”) (quoting Restatement
(Second) of Torts § 8A cmt. b)—because “[b]usiness persons are presumed to know that harm
will result from conversion of a party’s property.” Leigh, 165 B.R. at 215.

23

In short, the Snyders’ tortious misappropriation of the Murphys’ money constituted
“willful and malicious injury . . . to another” as a matter of law.12 See, e.g., In re Horne, 549 B.R.
241, 250 (Bankr. E.D. Cal. 2016) (debt was nondischargeable because debtor “unauthorized[ly]
ret[ained] . . . [a] company] vehicle for personal use and without payment, . . . kn[owing] a
financial loss to the corporation was substantially certain to occur”); In re Chwat, 203 B.R. 242,
249 (Bankr. E.D. Va. 1996) (“debtor acted with fraudulent intent or deceit when . . . he
appropriated [ ] office equipment” because he “acted with intent to wrongfully deprive [creditor]
of [ ] partnership property”); In re Moore, 136 B.R. 570, 573–74 (Bankr. S.D. Fla. 1991)
(debtors’ “conduct . . . [was] clearly proscribed under [section] 523(a)(6)” when they misused
company “revenues . . . to pay certain of their personal living expenses”). As a result, the District
Court Judgment is nondischargeable under section 523(a)(6). I affirm the Bankruptcy Court’s
award of summary judgment to the Murphys on Count Three of the Adversary Complaint.
D. Amount of debt nondischargeable
The Snyders appear to concede that a portion of the District Court Judgment is likely
nondischargeable because they misappropriated the Murphys’ money for personal expenses. The
Snyders attempt to minimize their liability, however, by arguing that they should be allowed to
discharge (a) all of the $100,000 in damages stemming from the Haworth Project, as well as (b)
the “well over $200,000 of [the Murphys’] $275,000 investment” that “was, in fact” spent on the
Bible Street Project. See Appellants’ Br., Doc. No. 16, at 13. In other words, the Snyders assert
that only the “less than $20,000” they admit was used for personal expenses should be

12

To be sure, willfulness and maliciousness—like fraudulent intent— are states of mind. But
with respect to the section 523(a)(6) claim, the Snyders’ admitted actions establish “the requisite
. . . intent, as a matter of law.” See Sporty’s Farm v. Sportsman’s Mkt., 202 F.3d 489, 499 (2d
Cir. 2000); see also id. at 498 (holding that “there [was] more than enough evidence in the record
below of ‘bad faith intent’ . . . , so that ‘no reasonable factfinder could return a verdict against’”
the plaintiff) (quoting Norville v. Staten Island Univ. Hosp., 196 F.3d 89, 95 (2d Cir. 1999)).
24

nondischargeable, see id. at 14, because the remainder of the Murphys’ damages stem solely
from the breach of contract.
The Supreme Court has rejected in an analogous context the Snyders’ suggested approach
to parsing damages. In Cohen v. de la Cruz, 523 U.S. 213 (1998), the Court held that section
523(a)(2)(A) “prevents the discharge of all liability arising from fraud”—including “an award of
treble damages”—and not merely “the value of the ‘money, property, services, or . . . credit’ the
debtor obtains through fraud.” Id. at 215 (emphasis added). The Court noted that section 523(a)
consistently uses the word “debt” to “connot[e] broadly any liability arising from the specified
object.” Id. at 220 (emphasis added). Moreover, the Court reasoned, if the defendants were
correct that “the fraud exception only barred discharge of the value of any money, property, etc.,
fraudulently obtained by the debtor,” then “the objective of ensuring full recovery by the creditor
would be ill served.” Id. at 222. The Supreme Court doubted that Congress “would have favored
the interest in giving perpetrators of fraud a fresh start over the interest in protecting victims of
fraud,” and therefore held that the wrongdoer’s “entire debt”—including “relief that may exceed
the value obtained”—was “nondischargeable in bankruptcy.” Id. at 223.
Here, notwithstanding that the Snyders committed defalcation, embezzlement, and
conversion rather than fraud, the same principle applies. See Hambley, 329 B.R. at 403 (“Courts
have interpreted [Cohen’s] holding to apply to nondischargeable claims under Sections 523(a)(4)
and 523(a)(6) as well.”). As the Supreme Court indicated, limiting section 523(a)’s exceptions to
“the value of the money or property” obtained through defalcation, embezzlement, or tortious
wrongdoing “could prevent even a compensatory recovery” for the Murphys. 523 U.S. at 222.
The Snyders’ approach also would require the Murphys to distinguish losses that solely arose

25

from the Snyders’ breach of fiduciary duty from those that simultaneously arose from the
Snyders’ concomitant breach of contract. Such fine-toothed parsing would be unworkable.
Therefore, I conclude that the entire amount of the District Court Judgment is
nondischargeable because the debt was obtained through defalcation under section 523(a)(4),
and/or through a willful and malicious injury under section 523(a)(6). I affirm the Bankruptcy
Court’s ruling granting summary judgment to the Murphys on Counts Two and Three of the
Complaint, and deeming nondischargeable the $450,000, plus interest and costs, awarded in the
District Court Judgment.
IV.

Conclusion
For the foregoing reasons, I affirm the Bankruptcy Court’s ruling. The debt of $450,000,

plus interest and costs, is nondischargeable under sections 523(a)(4) and 523(a)(6).

So ordered.
Dated at Bridgeport, Connecticut, this 23rd day of April 2018.
/s/ STEFAN R. UNDERHILL
Stefan R. Underhill
United States District Judge

26